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Ryan Kavanaugh Left Adrift in Hollywood as Relativity Implodes

He was the guy who always had a beautiful woman on his arm and the next big thing tripping off his tongue. He could sell an idea like nobody’s business, pulling in partners and lenders, even when times got tough. L.A.’s infamous traffic couldn’t keep him down. Ryan Kavanaugh simply flew over the top of it all, in a helicopter owned by one of his many companies.

But on July 30, Kavanaugh’s gravity-defying run as a Hollywood mogul came crashing to terra firma. His Relativity Media filed for Chapter 11 bankruptcy, seeking protection from dozens of creditors as liabilities approached $1.2 billion and assets stood at about $560 million.

Not that the red-haired impresario acknowledged defeat, or anything like it. Even as his senior secured lenders took control of the bankruptcy process and prepared to auction the company, Kavanaugh made a point of asserting that he was still CEO. He greeted an initial hearing in U.S. Bankruptcy Court in Manhattan almost as a blessing, saying initial court orders were “an important milestone in our reorganization,” and adding in a statement: “I look forward to building on this momentum to emerge as a stronger company.”

Behind the scenes, the 40-year-old, who started his first investment fund right out of college, was said by sources to be reaching out to potential partners to make a bid himself for Relativity.

“I just can’t see him leaving this world,” said one of Kavanaugh’s oldest associates. “This guy will not quit. He will never give up. … He just keeps figuring out a way to keep going.”

But one veteran Hollywood investor suggested that this time — 11 years after his company’s founding — Kavanaugh finally had run out of winning pitches. A key lender for promotion of films, RKA Film Financing, has filed a lawsuit, accusing Kavanaugh of fraud and misspending as much as $90 million. (Kavanaugh denied the claim.) Two sources confirm that some lenders are planning to look into whether Kavanaugh co-mingled business and personal funds, though a person close to the company says there has been no notice of such an inquiry.

One veteran Hollywood investor mocked the suggestion that Kavanaugh would be able to find new collaborators. “By now, with all the lawsuits and the trail of disillusioned partners, would anyone want to touch a deal with him? I doubt it,” said the individual, who declined to be named, as his company is eyeing Relativity as an acquisition target. While some industry insiders could not resist bouts of schadenfreude, others expressed sadness, if not for Kavanaugh then for the widespread collateral damage to those who have been touched by Relativity’s unraveling.

Seventy-five of the company’s 350 employees were laid off in the week of the filing, many bitter because they said they received no severance pay. (Relativity declined to comment.)

Dozens of vendors are standing in line, hoping to collect some of the $89.9 million in unpaid bills to unsecured creditors recognized in the bankruptcy filing. They have little chance of recouping anything, experts who studied the filing said.

“It means there is the lack of another buyer in town, especially a buyer that doesn’t ncecessarily seek out tent-pole material,” said one laid off Relativity employee. “And it just continues the consolidation of power to the major studios.”

But, for Kavanaugh, there has always been a prosperous tomorrow.

His youthful investment fund — which took in money from Hollywood veterans like Mark Canton, Jon Peters and Jim Wiatt — ended in virtual bankruptcy in 2002, after failed investments in several private companies. An arbitrator overseeing a lawsuit by another client, the PR executive Michael Sitrick, found Kavanaugh “clearly negligent” in the way he managed Sitrick’s funds.

But Kavanaugh bounced back, within years putting together hundreds of millions of dollars in loans for film slates at Sony and Universal. While the studios were happy for the working capital, some on the lending side quietly steamed over what they said were significant losses. Kavanaugh was never accused of wrongdoing. He soon launched his own productions under the Relativity Studios label.

The studio boss and his new wife are expecting their first child, and the peripatetic money-man clearly wants to remain in the game. But if he chooses to move beyond Hollywood, where would he land?

Kavanaugh already has many holdings via a family investment firm, Knight Global, where his brother is also an executive. A fact sheet supplied by a Kavanaugh representative says the company has “more than a dozen investments totaling over $1 billion in private and public company value.” That was before the acquisition this spring of a “boutique full-service investment advisory firm.”

Among Knight Global’s reported investments: a dog food company and a cancer treatment developed by Kavanaugh’s father, who is an eye surgeon. And a vitamin-packed patch that is “the
safest, most natural and effective way to help your body recover when drinking alcohol.”

But, it’s a far cry from a new movie deal with Kavanaugh friend Bradley Cooper — something the entrepreneur is not going to give up easily, stress those who know him best.

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